Dear Client,
This summer has been an eventful one, at a time when many investors and market participants are usually enjoying the holidays.
From EDM’s perspective, two issues stand out above all others:
- Rising bond yields and the shift in tone from Central Banks.
- Doubts regarding the reasonableness of U.S. equity valuations and the opportunity presented by quality stocks.
Let us address these topics one by one:
Interest Rates and Bond Yields
Throughout the summer, sovereign bond yields continued to rise (and bond prices continued to fall). This development, long anticipated by EDM, is driven by several factors:
- Inflation remains above target and has been exacerbated by energy prices.
- Central Banks are responding in an effort to avoid a repeat of 2022.
- Growing concern over the level of indebtedness across all developed countries, whose long-term trajectory is unsustainable.
- The enormous volume of corporate bond issuance required to finance investments in Artificial Intelligence.
Chart 1 illustrates this trend and suggests that, sooner or later, governments will have to adopt measures to prevent a loss of confidence in their debt. Unfortunately, fiscal discipline has few supporters, as the remedies required (spending restraint and/or tax increases) tend to be unpopular.
The Opportunity in Quality Companies
The growing popularity of passive investing through index funds and ETFs is rapidly fostering the “momentum” investment style, which may lead to a disconnect between corporate earnings and share prices. This is precisely what has occurred over the last two years.
The so-called “momentum” style consists of investing in companies whose shares are rising on the back of strong expectations and continuing to do so for as long as the music keeps playing. In reality, it reflects a speculative investment approach, as it assumes that investors will be able to leave the party before the trend reverses: buy in order to sell at exactly the right moment.
Managers who, like EDM, invest based on fundamental investment principles do so with a focus on business value, trusting, through experience, that share prices will eventually be driven by earnings growth: buy to accompany growth and grow alongside it.
At present, however, there is a disconnect between EPS (earnings per share) growth and share prices, a divergence that has persisted since mid-2025. Charts 2 and 3 illustrate two examples of this phenomenon.
How long will this situation last? We do not know.What we do know is that this investment style is:
- Understandable.
- Predictable in its long-term results...
- ...though not necessarily in the short term.
At EDM, we have experienced situations like this before. The most recent example was the 2022-2023 period. Table 1 shows the performance of the EDM International – Strategy Fund during that time. We believe its current portfolio represents an outstanding opportunity.
We sincerely appreciate your trust and send you our warmest regards.
Carlos Llamas
Chief Executive Officer
LEGAL CONSIDERATIONS
1) This information is provided for advertising and informational purposes only. It is not, and cannot be considered, investment advice or a legal opinion, nor is it intended to replace any advice required in these matters. It does not constitute an offer to sell or a solicitation to buy.
2) All opinions and estimates provided have been prepared based on sources considered reliable. However, EDM Gestión, SAU, SGIIC cannot guarantee that they are accurate or complete and accepts no responsibility for any direct or indirect loss that may result from the use of the information contained in this document.
3) This information includes data relating to the past performance of the products discussed. EDM Gestión, SAU, SGIIC warns that past performance is not a reliable indicator of future results.
4) Investors should be aware that the products included in this document may not be suitable for their specific investment objectives, financial or wealth situation, or risk profile. Accordingly, they should make their own decisions taking these circumstances into account and seek specialised tax, legal, financial, regulatory, accounting or any other advice they may require.
5) The instruments referred to in this information may be affected by a variety of common factors, including:
• Market fluctuations arising from unforeseen circumstances.
• Liquidity risks and other factors that may affect the performance of the investment.
6) This documentation may contain data based on currencies other than those used by its recipients. Therefore, consideration should be given to the possibility of any appreciation or depreciation in the value of such currencies and the impact this may have on the results of the proposed products or instruments.
7) For each EDM Gestión, SAU, SGIIC fund, the full prospectus, the Key Information Document (KID), periodic reports and the latest audited annual report are available to the public and may be obtained free of charge from the registered office of the Management Company or via the website www.edm.es.
8) EDM Gestión, S.A.U., SGIIC is a Spanish public limited company registered with the CNMV's Special Register of Management Companies of Collective Investment Schemes under number 49 and with the Madrid Commercial Registry in volume 36,739, folio 52, page M-658,326, tax identification number (CIF): A-58.217.175. Its activities include, among others, the representation, management and administration of Spanish-domiciled investment funds and investment companies, as well as discretionary portfolio management.
9) EDM International - Strategy Fund is a sub-fund of EDM International SICAV, authorised in Luxembourg and regulated by the Commission de Surveillance du Secteur Financier (CSSF) (registration number 851). The Management Company is Waystone Management Company (Lux) S.A., which is subject to the supervision of the CSSF. The sub-fund is actively managed and marketed in Spain by EDM Gestión, S.A.U., S.G.I.I.C. (CNMV registration number 49). It is an Article 8 SFDR sub-fund. The fund has a risk profile of 4 on a scale from 1 to 7. Over the last five financial years, Class L has achieved the following annual returns: 2020: 0.28%; 2021: 29.23%; 2022: -17.81%; 2023: 26.01%; 2024: 8.58%; 2025: 8.56%.
